Registered Pension Plan (RPP) - Basic clarifications

You can contribute 18% of your earned income from the previous tax year.

You willl get what you contributed and what employer contributed.

When you retire and can choose to convert RRSP to an RRIF to make withdrawals or get an annuity.

You will pay tax on what you withdraw from the account. If you have little or no income it will be lower.

If you make less than 45,000 put that money in a TFSA instead.

I am not an expert but here is my understanding- the employer contribution is a taxable benefit, but then you get a deduction from income for both your contribution plus the employer contribution.

When you retire you will receive a pension on which you will be taxed as you receive it, but then you received a tax benefit as you paid in. What your pension will be depends on the plan itself; only your HR department can answer that question. Usually there is a formula using your best 5 or 3 years by whatever percentage. Each plan is different. There will be no differentiation between the contributions made and the growth on those contributions. In that sense it's like an RRSP; you get a tax break when you contribute, but then you are taxed on the full withdrawals when you use it.

As to whether it is worth contributing or not- sometimes you have no choice; it is a requirement of your employment with that company or govt department. Also, how stable is your company and it's plan; note Sears; I have a public service pension based on 13 years of service; even if I could have opted out, I would have been stupid to do so. It might be a small pension but it is consistent and very welcome.

Pensions are a complicated topic. First point to clarify is that an RPP is not the same as an RRSP. Your pension, based on the fact that the employer matches is known as a defined contribution plan.

On the defined contribution side you usually have some control on how the contributions are invested (choice of investments to pick from) It is this choice along with years to retirement and amount contributed that will determine how much you receive at the end. In this case the firm bears no risk as there is no guaranteed payout - you need to read through the plan details to get a full understanding as every plan is different. All money taken out of the plan is taxed as income and as mentioned the end result is based on how well those investments do over time. It is theoretically possible you could receive less than what was contributed.

All contributions to your plan get calculated in what is called a pension adjustment, this pension adjustment reduces dollar for dollar what can be contributed to an RRSP account (18% of previous years earned income as another poster indicated.)

so to recap - no guaranteed returns, all moneys removed are taxed as income (hopefully more than what is contributed, but not guaranteed), any moneys contributed reduced from RRSP room available.

Should you continue. Yes, likely you have no choice and to give up on the employer match is to throw free money away. The biggest control you have is how that money is invested, which is defined by your plan. Some may have lots of options including low fee choices, some may have few options with high management fees regardless of choice. On the RRSP side depending on where you hold it, the choice is fully up to you on what you can invest in and you have way more control in managing fees. Fees are a key factor in your investing success, they should not be overlooked.

CdnMobi wrote: ↑ Pensions are a complicated topic. First point to clarify is that an RPP is not the same as an RRSP. Your pension, based on the fact that the employer matches is known as a defined contribution plan.

Pension plans where the employee matches, or contributes to, can be defined contribution plan or can be defined benefit plan. DC plan is quite different than DB plan.

The company usually won't give you a choice not to contribute to the plan, as it is usually a mandatory plan (which is good). After you retire or stop working there, you won't be able to continue contributing to it.

There should be a HR or Pension department in the company you can ask questions. They can answer more accurately what you plan is and what benefits it gives. There should also be regular pension info session each year you can attend, to get update on how the pension is doing.

Arrgh wrote: ↑ Pension plans where the employee matches, or contributes to, can be defined contribution plan or can be defined benefit plan. DC plan is quite different than DB plan.

Which is why I said "employer" not employee. A DB plan can be contributory or non contributory, but employer matches do not happen in a DC plan as the employer is responsible for the final payout. Depending on the return on investments, the employer may have to put in a significant amount to make the payout beyond that of just matching which gets into the whole concept of underfunded plans. OP said he contributed and the employer matched his contributions, thus DC plan. His employer has no obligation beyond the stated match (usually capped) and the employee can put in what he wants, all subject to the provisions of the plan.

CdnMobi wrote: ↑ Which is why I said "employer" not employee. A DC plan can be contributory or non contributory, but employer matches do not happen in a DC plan as the employer is responsible for the final payout. Depending on the return on investments, the employer may have to put in a significant amount to make the payout beyond that of just matching which gets into the whole concept of underfunded plans. OP said he contributed and the employer matched his contributions, thus DC plan. His employer has no obligation beyond the stated match (usually capped) and the employee can put in what he wants, all subject to the provisions of the plan.

Actually I meant employer matches or contributes. It can be DC or DB.

OP's employer matches his contribution, can still be DB.

I think we can agree that the OP really needs to read up on their pension details to get the full understanding. The Plan should be providing statements, stating some of the details on what to expect and help literature on many of the specifics of how it functions. If in those statements, there is an annual amount (earned or accrued) payable when retired then you have a DB plan. If it provides a current $ value of assets contributed, then you have a DC plan. The DC plan will not be able to determine the payable amount until retirement date.

Thank you everyone for your precious time & responding with your thoughts. Very helpful in deed.
I am attaching the actual contribution here
BTW, this RPP is not something mandatory ( I can always opt out if I want) but thought good to contribute anyway.
Your suggestions/recommendations are most welcome if you get chance to review the investment portfolio (for now, I have chosen conservative one).

Thanks a lot in advance

CdnMobi wrote: ↑ I think we can agree that the OP really needs to read up on their pension details to get the full understanding. The Plan should be providing statements, stating some of the details on what to expect and help literature on many of the specifics of how it functions. If in those statements, there is an annual amount (earned or accrued) payable when retired then you have a DB plan. If it provides a current $ value of assets contributed, then you have a DC plan. The DC plan will not be able to determine the payable amount until retirement date.

Whether it's a DC or DB plan, many pension administrators provide an annual report to the employee on the value of whole pension fund, and that employee's current $ value of assets contributed, and what the employee can expect to receive based on the plan value that date (or day before). Calculations based on that point in time can be made. If the pension administrator doesn't provide such info, the employees can request for those info. But a competent administrator should already be doing that as part of their contractual obligation (to administer the pension plan).